Bad times continue for the Indian markets in 2011. These fell by another 1.6% during the last week. In all, the total decline for the BSE-Sensex for this year now stands at around 14%. In all, the Sensex has lost over 2,800 points during the first twenty nine trading days of this year. This is around 91% of the total gain it had clocked in the whole of 2010!
The current fear in Indian stock markets is largely centred on rising inflation, and subsequently higher interest rates in the future. This is the core reason foreign institutional investors or FIIs are selling Indian stocks. The RBI recently raised interest rates in the review of its monetary policy for 2010-11. Markets seem to be fearful that rates are likely to rise even further going forward. This is if inflation were to remain high.
Things are not so ripe on the economic growth front as well. As reported late last week, India's industrial growth stood at just 1.6% YoY during December 2010. This is even slower than the revised November growth number of 3.6%.
As for the stock markets, while valuations have dropped across the board, we do not see the current stock market correction to get over anytime soon. The bright spot however is that if this correction were to persist for some more time, it will bring down stock prices to even cheaper valuations. And that would provide a good entry point to investors who have been waiting on the sidelines.